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UK Parent Company Liability: The Duty of Care Tests

On 4 July 2018, the Court of Appeal in England and Wales handed down its judgment in AAA & Ors. v Unilever PLC and Unilever Tea Kenya Limited [2018] EWCA Civ 1532. The Court of Appeal determined that parent companies will only owe a duty of care in respect of its subsidiaries’ activities, where it has effectively taken over the management of the subsidiary, or has provided it with relevant advice.

The case surrounds claims brought by the victims of violence in Kenya, including employees and former employees of the defendants, following an economic and humanitarian crisis that erupted after the presidential election in December 2007. The victims claimed that UTKL and Unilever failed to discharge their duties of care.

The case centred upon parent company liability, and also considered the issue of jurisdiction. The victims brought an intended group action claim in the English courts against UTKL, which is domiciled in Kenya, and its English parent, Unilever, which is domiciled in England (and the Netherlands). In order to bring a claim in England and Wales, the claimants had to demonstrate that there was “a good arguable claim against Unilever, which can then be treated as the so-called anchor defendant”.

The Court of Appeal stated that parent company liability is subject to the same 3 part test under Caparo v Dickman [1990] 2 AC 605, in relation to the need to find a proximity of relationship, foreseeability and damage (reiterating the Court’s previous decision in Chandler v Cape PLC [2012] 1 WLR 3111).

Following this, Lord Justice Sales stated that parent companies may then owe a duty of care in two scenarios:

where the parent has substantively taken over the management of the relevant activity in the subsidiary; and/or

the parent has given relevant advice to the subsidiary about how it should manage a particular risk.

In this case, the appellants had tried to argue the second limb, that UTKL had relied upon advice given by Unilever in relation to the management of risk in respect of political unrest and violence in Kenya. The Court did not accept this however, and stated that the appellants were “nowhere near being able to show that they have a good arguable claim against Unilever on this basis. The witness evidence and the documentary evidence… shows that UTKL did not receive relevant advice from Unilever in relation to such matters. The evidence also shows clearly that UTKL understood that it was responsible itself for devising its own risk management policy and for handling the severe crisis which arose in late 2007, and that it did so”.

As such, the Court of Appeal did not consider that either of the two categories applied in this case, and Unilever did not owe the victims a duty of care. Therefore, without a claim against the parent company, the claim against UTKL could not be heard in the English courts.

Parent company liability is often an important factor when considering bringing a claim, particularly in relation to matters arising from incidents that occur abroad. Equally, it can be considered by regulators when deciding whether to take enforcement action, and against which parties.

Compare jurisdictions:Litigation: Enforcement of Foreign Judgments

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